Knowing What Works States and Cities Build Smarter Social Policy with New and Improved Poverty Measurement

To better understand poverty and find the best strategies to
reduce it, states and localities need to know who is poor, why they
are poor, and what policies work best for different groups. Rather
than rely on the official poverty measure, in use since the early
1960s, several states and localities have taken the lead in
developing new measures of poverty that more accurately account for
the resources available to their residents as well as their needs.
Supported by a strong body of innovative research from the federal
government and public policy research organizations, these new
measures not only more accurately gauge the level of poverty but
offer a cost-effective way to evaluate the effectiveness of
anti-poverty programs. Improved poverty measurement also helps
policymakers identify effective new programs to assist vulnerable
populations in meeting their families’ often-pressing
needs.

This brief provides an up-to-date look at how pioneering states
and localities are using – or plan to use – improved
poverty measurement to build smarter social policy. In a difficult
fiscal climate, investing in better measures to estimate poverty
and evaluate the effectiveness of anti-poverty programs is sound
practice that will enable policymakers to quantify whether and how
interventions are improving outcomes for children and their
families.

How the Official Poverty Measure Falls Short

The official poverty rate is determined by comparing a
family’s pre-tax cash income to an income poverty threshold.
If a family’s income falls below this threshold, it is
considered to be poor. This threshold was developed in the 1960s
and sets the poverty line at three times the cost of a basic food
basket, because food was then found to account for one-third of the
cost of living. Since then, the threshold has only been adjusted to
account for inflation, despite the fact that food now accounts for
only one-seventh of the cost of living.

This threshold has become an inaccurate measurement tool,
providing a flawed accounting of both family needs and family
resources. On the needs side, it fails to consider the growing
burden of nondiscretionary expenses for such necessities as
housing, child care, out-of-pocket medical expenses, and
transportation. Nor does it account for variations in the cost of
living based on geographic location. On the resource side, the
official poverty measure also falls short. It counts the pre-tax,
cash income of a family, which includes earnings, dividends,
interest, Social Security 4 National Center for Children in Poverty
payments, and pensions, among other income, as well as any public
assistance, Supplemental Security Income (SSI), alimony, and child
support payments a family receives. However, the official measure
excludes post-tax cash benefits like the Earned Income Tax Credit
(EITC) and the refundable portion of the child tax credit, and
ignores in-kind government benefits like the Supplemental Nutrition
Assistance Program (SNAP, or food stamps), Medicaid, housing
subsidies, school lunch assistance, and child care assistance.

Clearly, the limitations of the official measure pose an
obstacle to designing and evaluating anti-poverty policy at all
levels of government. An unrealistic poverty threshold on the needs
side and the exclusion of important income and work supports on the
resource side are producing a flawed accounting of who is poor. In
addition, since the official measure does not factor in a number of
important government programs intended to assist low-income
families, it is difficult to assess what programs are effective at
reducing poverty. All of these deficiencies point to the need for
an improved poverty measure, one that can not only help
policymakers and the public gain a better understanding of who is
actually living in poverty and the expenses that are pushing people
into poverty, but also what government programs are effective in
preventing or alleviating poverty at the national, state, and local
levels.

A Proposal for Improving Poverty Measurement

Figure 1: Official and National Academy of Sciences Recommended
Poverty Measurement at a Glance

More than 17 years ago, in an effort to rectify the limitations
of the official poverty measure, the National Academy of Sciences
(NAS) made detailed recommendations on how poverty in America might
be more accurately measured. The NAS recommendations were drafted
in 1995 at the request of Congress and since then, governmental and
non-governmental poverty research organizations have developed a
range of poverty measures broadly based on the NAS proposal.

While these measures differ in important ways, they generally
have the following features: On the needs side of the poverty
equation, they account for the cost of food, clothing, shelter, and
utilities, based on data provided in the Consumer Expenditure
Survey; they adjust for regional variation in housing expenses;
they account for out-of-pocket medical expenses; and they include
work-related expenses (for example, child care and transportation).
On the resources side, they adjust for post-tax income –
including tax credits – and account for both housing
assistance and nutritional assistance (such as SNAP, school
lunches, and the Special Supplemental Nutrition Program for Women,
Infants and Children program [WIC]).